High Risk FactorsThere are several high risk factors facing the continent. First, as discussed by the Lancet’s Preparedness and Vulnerability study, not all countries on the continent are equipped to implement the technical and operational interventions necessary for rapid testing and isolation of infected individuals who are traveling to the continent. China is Africa’s largest commercial partner, which means there is a high travel volume of Chinese nationals—where the pandemic started—to the continent and therefore, potential risk for the rapid spread of COVID-19. While this link has not yet been documented, it is too early to rule it out. Thus far, many of the confirmed cases have documented links to travelers coming from the United States and Europe.
Second, not all travel to the continent has been halted. As of March 14, 2020, the Lancet reported that Ethiopian Airlines, the largest carrier in Africa, continued flights from Africa to China, while all Chinese airline companies and others continued to operate as well. Lancet assesses that the overall risk of importation to Africa is lower than that to Europe (1% vs 11%, respectively, according to current estimates), but “response and reaction capacity are also lower.”
Third, the healthcare infrastructure throughout the continent is fragile, and the public health impacts are likely to be further complicated by populations disproportionately affected by HIV, tuberculosis (TB), and other infectious diseases. Tedros Adhanom Ghebreyesus, Director-General of the WHO, recently said his “biggest concern” was COVID-19 spreading in countries with weak health systems. Coordinated action across all government sectors, utilizing trusted networks of professional civil servants, will be key to responding to COVID-19 in Africa.
Potential Mitigating Factors
One thing Africa has going for it in the face of COVID-19 is its youthful population, with the median age under 20. Only three percent of sub-Saharan Africa’s population is older than 65, and thus far, all indications are that children and younger people with no underlying conditions fare quite well with COVID-19.
Some have also suggested that higher average temperatures on the continent will make it harder for COVID-19 to survive and spread, but this is disputed and still an open question.
African Governments Respond
On March 15, 2020 South Africa’s President, Cyril Ramaphosa, declared a “national state of disaster,” and closed schools and banned mass gatherings. He also imposed travel restrictions on nationals from high risk countries including Italy, Iran, the US, the UK, China and elsewhere. The number of known confirmed cases in South Africa sits at 62 as of March 17, 2020. As described by Mail & Guardian, “With the disease currently growing at a rate of 61% a day in South Africa, by the end of this month we could run out of ICU beds.”
Kenya’s President Uhuru Kenyatta followed suit by closing schools, discouraged large gatherings, and banned travel to Kenya except for Kenyan citizens and foreigners with valid residence permits. In an effort to discourage the physical handling of money, Kenya’s largest telecom provider, Safaricom, will implement a fee-waiver on all mobile-money transactions under $10 that are carried out on its platform, M-Pesa. Kenya has three confirmed COVID-19 cases.
Many other countries are taking similar actions to prevent a wave of infections, but large gatherings continue to occur in some countries. Regardless of how many Africans are infected and have adverse health impacts, the negative economic impact cannot be avoided. The UN Economic Commission on Africa projects that economic growth across the continent will drop from 3.2 percent to about 2 percent in 2020. Tourism, supply chains, commodity exports, and remittances are just a few of the sectors likely to be negatively impacted. Governments will have to pay more for food products, pharmaceuticals, and energy.
Implications for Project Finance Projects
COVID-19 will have a significant impact on project development markets across Africa with companies contemplating claiming force majeure relief during these unprecedented times. Force majeure is generally found when an event is (i) beyond the breaching party’s control and (ii) is reasonably unforeseeable. For example, travel bans placed on many Chinese companies will have a direct impact on the ability of persons from affected countries to travel to the continent to complete work under project development contracts. This will cause delays and create grounds for force majeure claims. When negotiating transaction documents, parties should be mindful of the potential impact of COVID-19 may have on their contracts.
Chinese manufacturers have issued shutdown notices which will have a direct impact on projects in the construction phase. Various African countries have entered into short and long-term collaborative arrangements with Chinese partners that not only supply the material for the development of various projects, but also supply the technical support and expertise for various projects—from the feasibility study to the commercial operation phases, and the subsequent continued management of the project. As the number of new confirmed COVID-19 cases decreases in China, it appears that the shutdown notices may soon be lifted. However, as the number of cases continues to rise in Africa, the continuity of projects may not improve until the spread of COVID-19 is controlled.
We will continue to monitor the rapidly evolving situation on the continent as a consequence of COVID-19. If you are doing business on the continent and require further guidance and legal advice, please contact Witney Schneidman at firstname.lastname@example.org or Bob Kayihura at RKayihura@cov.com.
This post can also be found on CovAfrica, the firm’s blog on legal, regulatory, political and economic developments in Africa.